These are similar to Period Certain annuities. Funding Agreements may be used for settlements between corporations or B2B disputes.
Applications: include policy buyouts, funding of environmental clean-up site schedules for remediation, and other scenarios where a corporation or other entity (i.e. that is "other than a natural person") needs a contract providing for a fixed payout and cannot use an annuity.
The differences between a funding agreement and a regular annuity are:
- There is no Measuring Life or annuitant
- There is no premium tax
- The owner (assuming it’s a taxable entity) is taxed on the inside build-up
- Because the funding agreement is not an annuity, IRC Section 72 does not apply
Benefits:
- More effective future planning due to certainty of recovery
- Signficant expense reduction
- Tax-efficiency through timing of payments
- Insured's ability to meet SEC requirements may be enhanced
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